34-105. Guaranteed energy cost savings contracts; definitions

A. An agent may contract for the procurement of a guaranteed energy cost savings contract with a qualified provider.

B. An agent may enter into a guaranteed energy cost savings contract with a qualified provider if the agent determines that the amount the agent would spend on the energy cost savings measures recommended in the proposal would not exceed the amount to be saved in energy costs over the expected life, according to the manufacturer's equipment standards, of the energy cost savings measures implemented, the term of the financial agreement or twenty-five years, whichever is shortest, after the date that installation or implementation is complete, if the recommendations in the proposal are followed. An agent shall retain the cost savings achieved by a guaranteed energy cost saving contract, and these cost savings may be used to pay for the contract and project implementation.

C. An agent shall use objective criteria in selecting the qualified provider, including the cost of the contract, the energy savings, the net projected energy savings, the quality of the technical approach, the quality of the project management plan, the financial solvency of the qualified provider and the experience of the qualified provider with projects of similar size and scope. An agent shall state each criterion with its relevant order of importance in the request for proposal.

D. In selecting a contractor to perform any construction work related to performing the guaranteed energy cost savings contract, the qualified provider may develop and use a prequalification process for contractors. These prequalifications may require the contractor to demonstrate that the contractor is adequately bonded to perform the work and that the contractor has not failed to perform on a prior job.

E. The selected qualified provider shall perform a study in order to establish the exact scope of the guaranteed energy cost savings contract, the fixed cost savings guarantee amount and the methodology for determining actual savings.  The agent shall review and approve this report before the actual installation of any equipment.  The qualified provider shall transmit a copy of the approved study to the governor's office of energy policy.

F. The guaranteed energy cost savings contract shall require that in determining whether the projected energy savings calculations have been met, the energy costs savings shall be computed by comparing the energy baseline before installation or implementation of the energy cost savings measures with the energy consumed after installation or implementation of the energy cost savings measures. The qualified provider and the agent may agree to make modifications to the energy baseline only for any of the following:

1. Changes in utility rates.

2. Changes in the number of days in the utility billing cycle.

3. Changes in the square footage of the facility.

4. Changes in the operational schedule of the facility.

5. Changes in facility temperature.

6. Significant changes in the weather.

7. Significant changes in the amount of equipment or lighting utilized in the facility.

8. Significant changes in the nature or intensity of energy use such as the change of classroom space to laboratory space.

G. The information to develop the energy baseline shall be derived from historical energy costs or actual energy measurements or shall be calculated from energy measurements at the facility where energy cost savings measures are to be installed or implemented. The baseline shall be established before the installation or implementation of energy cost savings measures.

H. When submitting a proposal for the installation of equipment, the qualified provider shall include information on the projected energy savings associated with each proposed energy cost savings measure.

I. An agent, or two or more agents, may enter into a financing agreement with a qualified provider or the financial institution, trustee or paying agent for the purchase and installation or implementation of energy cost savings measures. The guaranteed energy cost savings contract may provide for payments over a period of not more than the expected life, according to the manufacturer's equipment standards, of the energy cost savings measures implemented, the term of the financial agreement or twenty-five years, whichever is shortest.  The contract shall provide that all payments, except obligations on termination of the contract before its expiration, shall be made pursuant to the terms of the agreement.  If an agent purchases the energy cost savings measure, the qualified provider shall guarantee that the energy cost savings meet or exceed the agent's total cost of purchase.

J. The guaranteed energy cost savings contract shall include a written guarantee of the qualified provider that the energy cost savings will meet or exceed the costs of the energy cost savings measures over the expected life, according to the manufacturer's equipment standards, of the energy cost savings measures implemented, the term of the financial agreement or twenty-five years, whichever is shortest, except as provided in subsection I of this section.  The qualified provider shall:

1. For the term of the contract, prepare a measurement and verification report on an annual basis in addition to an annual reconciliation of savings.

2. Reimburse the agent for any shortfall of guaranteed energy cost savings on an annual basis.

3. Use the international performance and measurement and verification protocol standards or the federal energy management program standards to validate the savings guarantee.

K. The agent may obtain any required financing as part of the original competitive sealed proposal process from the qualified provider or a third-party financing institution.

L. A qualified provider that is awarded the contract shall give a sufficient bond to the agent for its faithful performance of the equipment installment.

M. This section does not apply to the construction of new buildings.

N. An agent may use a simplified energy performance contract for projects less than five hundred thousand dollars. Simplified energy performance contracts are not required to include an energy savings guarantee and shall comply with all requirements in this section except for the requirements that are specifically related to the energy savings guarantee and the measurement and verification of the guaranteed savings.

O. For the purposes of this section:

1. "Agent" has the same meaning prescribed in section 34-101 but also includes a community college district organized under title 15, chapter 12, the department of administration and the Arizona board of regents.

2. "Construction" means the process of building, altering, repairing, improving or demolishing any structure or building, or other public improvements of any kind to any real property.  Construction does not include the routine operation, routine repair or routine maintenance of existing structures, buildings or real property.

3. "Energy baseline" means a calculation of the amount of energy used in an existing facility before the installation or implementation of the energy cost savings measures.

4. "Energy cost savings measure" means a training program or facility alteration designed to reduce energy consumption and may include one or more of the following, and any related meters or other measuring devices:

(a) Insulating the building structure or systems in the building.

(b) Storm windows or doors, caulking or weather stripping, multiglazed windows or door systems, additional glazing, reductions in glass area, or other window and door system modifications that reduce energy consumption.

(c) Automated or computerized energy control systems.

(d) Heating, ventilating or air conditioning system modifications or replacements, including ground source heat pumps.

(e) Replacing or modifying lighting fixtures to increase the energy efficiency of the lighting system without increasing the overall illumination of a facility unless an increase in illumination is necessary to conform to the applicable state or local building code for the lighting system after the proposed modifications are made.

(f) Indoor air quality improvements to increase air quality that conform to the applicable state or local building code requirements.

(g) Energy recovery systems.

(h) Installing a new or retrofitting an existing day lighting system.

(i) Procurement of low-cost utility supplies of all types, including electricity, natural gas, propane and water.

(j) Devices that reduce water consumption and water costs or that reduce sewer charges.

(k) Rainwater harvesting systems.

(l) Combined heat and power systems.

(m) Renewable and alternative energy projects and renewable energy power service agreements.

(n) Self-generation systems.

(o) Any additional building systems and infrastructure that produce energy, or that provide utility cost savings not specifically mentioned in this paragraph, if the improvements meet the life cycle cost requirement and enhance building system performance or occupant comfort and safety.

(p) Geothermal.

5. "Life cycle cost" means the sum of the present values of investment costs, capital costs, installation costs, energy costs, operating costs, maintenance costs and disposal costs and utility rebates over the life of the project, product or measure as provided by federal life cycle cost rules, regulations and criteria contained in the United States department of energy federal energy management program "guidance on life-cycle cost analysis" required by executive order 13423, January 2007.

6. "Qualified provider" means a person or a business that is experienced in designing, implementing or installing energy cost savings measures, that has a record of established projects or measures of similar size and scope, that has demonstrated technical, operational, financial and managerial capabilities to design and operate cost savings measures and projects and that has the financial ability to satisfy guarantees for energy cost savings.